Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-1
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[X]
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QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017
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OR
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 000-54635
STEALTH TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
27-2758155
(I.R.S. Employer Identification No.)
801 West Bay Drive, Suite 470
Largo, Florida 33770
(Address of principal executive offices, including zip code.)
727-330-2731
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," "non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer
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Accelerated Filer
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Non-accelerated Filer (Do not check if smaller reporting company)
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Smaller Reporting Company
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[X]
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
97,793,278 as of May 6, 2017.
Items 1 and 2 of Part I of our Form 10-Q filed with the SEC on May 22, 2017 are being amended to include the financial statements and Management's Discussion and Analysis of Financial Condition, which were omitted from the foregoing Form 10-Q. Item 2 of Part II of our Form 10-Q is being amended to include 1,200,000 restricted shares of common stock issued to consultants.
TABLE OF CONTENTS
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Page
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3
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Unaudited Consolidated Financial Statements
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3
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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4
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Quantitative and Qualitative Disclosures About Market Risk
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6
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Controls and Procedures
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7
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7
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Legal Proceedings
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7
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Risk Factors
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7
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Unregistered Sales of Equity Securities and Use of Proceeds
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7
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Defaults Upon Senior Securities
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7
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Mine Safety Disclosures
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7
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Other Information
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7
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Exhibits
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8
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9
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10
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PART I – FINANCIAL INFORMATION
STEALTH TECHNOLOGIES, INC.
Consolidated Financial Statements
For the periods ended March 31, 2017 and December 31, 2016
Consolidated Financial Statement Index
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F–1
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F–2
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F–3
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F–4
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STEALTH TECHNOLGIES, INC.
Consolidated Balance Sheets
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March 31,
2017
$
(unaudited)
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December 31,
2016
$
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|||||||
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ASSETS
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||||||||
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Cash
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211,940
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456,967
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||||||
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Accounts receivable
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463,421
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853,755
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||||||
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Accounts receivable – related party
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139,544
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59,926
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Prepaid expenses
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192,725
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162,725
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Prepaid expenses – related party
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413
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–
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Inventory
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396,403
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396,518
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Total Current Assets
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1,404,446
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1,929,891
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Intangible assets, net
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66,051
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102,337
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Total Assets
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1,470,497
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2,032,228
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LIABILITIES
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Current Liabilities
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||||||||
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Accounts payable and accrued liabilities
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955,542
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1,120,632
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Accounts payable – related party
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–
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9,587
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||||||
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Deferred revenue
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146,250
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146,370
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Derivative liabilities
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2,340
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1,944
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Loans payable
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120,000
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120,000
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Due to related parties
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141,714
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163,798
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Liability for shares issuable – related party
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1,191,960
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843,616
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Convertible debentures
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32,613
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70,000
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Total Current Liabilities
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2,590,419
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2,475,947
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STOCKHOLDERS' DEFICIT
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Preferred Stock
Authorized: 500,000,000 preferred shares with a par value of $0.001 per share
Issued and outstanding: 1,000,000 preferred shares
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1,000
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1,000
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Common Stock
Authorized: 750,000,000 common shares with a par value of $0.001 per share
Issued and outstanding: 97,793,278 and 96,593,278 common shares, respectively
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97,793
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96,593
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Additional paid-in capital
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2,517,516
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2,486,716
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Accumulated deficit
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(3,736,231
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(3,028,028
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Total Stockholders' Deficit
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(1,119,922
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(443,719
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Total Liabilities and Stockholders' Deficit
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1,470,497
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2,032,228
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STEALTH TECHNOLGIES, INC.
Consolidated Statements of Operations
(unaudited)
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Three months
ended
March 31,
2017
$
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Three months
ended
March 31,
2016
$
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Revenue of goods
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669,257
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1,303,290
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Revenue of services – related party
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79,502
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119,494
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| Total revenue | 748,759 | 1,422,784 | ||||||
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Cost of goods sold
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(391,899
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)
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(491,949
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)
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Gross Margin
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356,860
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930,835
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Operating Expenses
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Amortization
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36,286
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36,689
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Consulting
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63,115
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949,841
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General and administrative
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370,841
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525,069
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Payroll
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137,767
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187,439
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Professional fees
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62,320
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51,293
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Research and development
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38,002
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–
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Total Operating Expenses
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708,331
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1,750,331
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Loss Before Other Income (Expense)
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(351,471
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)
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(819,496
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)
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Other Income (Expense)
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Gain (loss) on change in fair value of derivative liabilities
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(396
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350,986
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Interest expense
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(2,992
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(28,196
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Make whole expense with related party
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(348,344
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)
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(389,144
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Other expense
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(5,000
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)
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–
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Total Other Income (Expense)
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(356,732
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(66,354
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Net Loss
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(708,203
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(885,850
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Net Loss per Share – Basic and Diluted
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(0.01
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(0.01
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Weighted Average Shares Outstanding – Basic and diluted
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97,372,167
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63,979,657
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STEALTH TECHNOLGIES, INC.
Consolidated Statements of Cashflows
(unaudited)
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Three months
ended
March 31,
2017
$
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Three months
ended
March 31,
2016
$
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Operating Activities
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||||||||
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Net loss for the period
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(708,203
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)
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(885,850
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)
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Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
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Amortization of intangible assets
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36,286
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36,689
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Change in fair value of make whole expense with related party
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348,344
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389,144
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Imputed interest
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–
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1,496
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Issuance of shares for consulting services
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32,000
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–
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Liability for shares issuable – related party
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–
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919,392
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Loss (gain) on change in fair value of derivative liabilities
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396
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(350,986
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)
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Changes in operating assets and liabilities:
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||||||||
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Accounts receivable
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390,334
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373,221
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Accounts receivable – related party
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(79,618
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)
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(106,994
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)
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Prepaid expenses
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(30,000
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)
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(15,000
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)
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Prepaid expense – related party
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(413
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)
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–
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Inventory
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115
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(152,332
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)
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Prepaid inventory
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–
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297,305
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Accounts payable and accrued liabilities
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(165,090
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)
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160,563
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Accounts payable – related party
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(9,587
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)
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(195,980
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)
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Deferred revenue
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(120
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)
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–
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|||||
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Due to related parties
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(22,084
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)
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(17,200
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)
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Net cash provided by (used in) operating activities
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(207,640
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)
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453,468
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Financing Activities
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||||||||
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Repayments of loans payable
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–
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(19,491
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)
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|||||
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Repayments of convertible debentures
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(37,387
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)
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(90,000
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)
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Net cash used in financing activities
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(37,387
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)
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(109,491
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)
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Increase (decrease) in cash
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(245,027
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)
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343,977
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|||||
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Cash, beginning of period
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456,967
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388,183
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Cash, end of period
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211,940
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732,160
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Supplemental Disclosures
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||||||||
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Interest paid
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2,613
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–
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||||||
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Income tax paid
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–
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–
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STEALTH TECHNOLGIES, INC.
Notes to the Consolidated Financial Statements
(unaudited)
1. Nature of Operations and Continuance of Business
Stealth Technologies, Inc. (formerly Excelsis Investments, Inc.) (the "Company") was incorporated in the state of Nevada on May 27, 2010 under the name "Pub Crawl Holdings, Inc". On June 14, 2010, the Company entered into an Assignment Agreement (the "Acquisition") with PB PubCrawl.com LLC ("PubCrawl"), a California limited liability company, whereby the Company acquired a 100% interest in the member shares of PubCrawl in exchange for 500,000 common shares of the Company. The Acquisition was accounted for in accordance with ASC 805-50, Related Issues, as the companies were under common control prior to acquisition. On September 3, 2012, the Company sold their rights to PubCrawl to the former President and Director of the Company.
On November 28, 2012, the Company acquired 100% of the members shares of Stealth Card Inc. (formerly Mobile Dynamic Marketing, Inc.) ("Stealth Card"), a company incorporated in the state of Florida on November 6, 2012, in exchange for the issuance of 1,000,000 common shares. As part of the acquisition, the Company cancelled 15,000,000 issued and outstanding common shares held by the former President and Director of the Company and the management and directors of Stealth Card acquired 7,500,000 common shares of the Company in a private transaction with the former President and Director of the Company. Effectively, Stealth Card held 73% of the issued and outstanding common shares of the Company and the transaction has been accounted for as a reverse merger, where Stealth Card is deemed to be the acquirer for accounting purposes.
On March 11, 2014, the Company announced its name change from Pub Crawl Holdings to Excelsis Investments, Inc.
On September 1, 2014, the Company entered into a purchase agreement with a non-related party to purchase intangible assets by issuing 30% of the outstanding common shares of the Company as determined on an as-converted, fully-diluted basis, which shall not be subject to dilution by any future issuances for the purchase of 3,000 customer accounts The Company is recognizing the revenue generated from the intangible asset on a net basis.
On November 5, 2014, the Company entered into share exchange agreement with a former officer of the Company in regards to common shares in the Company's wholly-owned subsidiaries, Career Start, Inc ("CSI") and Career Start Management ("CSM"), private corporations incorporated in the state of Florida and New York, respectively. Under the terms of the agreement, the Company received 3,111,429 shares of the Company held by the former officer in exchange for 100% of the issued and outstanding common shares of CSI and CSM. Subsequent to the disposal of the subsidiaries, the Company has turned its focus on the development and retail of stealth cards, a product meant to block RFID (Radio Frequency Identifier Signal) chipped cards from being read when placed in the correct orientation to help users secure their personal information.
On March 14, 2016, the Company incorporated a new wholly owned subsidiary, Safety Technologies Inc., a Nevada company. The Company's intention is to sell products other than the stealth cards, through the subsidiary. As at June 30, 2016, there has been no activity within the subsidiary.
On May 19, 2016, the Company's wholly-owned subsidiary, Mobile Dynamic Marketing, Inc. changed its name to Stealth Card Inc.
On May 26, 2016, the Company changed its name from Excelsis Investments Inc. to Stealth Technologies, Inc.
STEALTH TECHNOLGIES, INC.
Notes to the Consolidated Financial Statements
(unaudited)
1. Nature of Operations and Continuance of Business (continued)
Stealth Technologies, Inc. (formerly Excelsis Investments, Inc.) (the "Company") was incorporated in the state of Nevada on May 27, 2010 under the name "Pub Crawl Holdings, Inc". On June 14, 2010, the Company entered into an Assignment Agreement (the "Acquisition") with PB PubCrawl.com LLC ("PubCrawl"), a California limited liability company, whereby the Company acquired a 100% interest in the member shares of PubCrawl in exchange for 500,000 common shares of the Company. The Acquisition was accounted for in accordance with ASC 805-50, Related Issues, as the companies were under common control prior to acquisition. On September 3, 2012, the Company sold their rights to PubCrawl to the former President and Director of the Company.
On November 28, 2012, the Company acquired 100% of the members shares of Stealth Card Inc. (formerly Mobile Dynamic Marketing, Inc.) ("Stealth Card"), a company incorporated in the state of Florida on November 6, 2012, in exchange for the issuance of 1,000,000 common shares. As part of the acquisition, the Company cancelled 15,000,000 issued and outstanding common shares held by the former President and Director of the Company and the management and directors of Stealth Card acquired 7,500,000 common shares of the Company in a private transaction with the former President and Director of the Company. Effectively, Stealth Card held 73% of the issued and outstanding common shares of the Company and the transaction has been accounted for as a reverse merger, where Stealth Card is deemed to be the acquirer for accounting purposes.
On March 11, 2014, the Company announced its name change from Pub Crawl Holdings to Excelsis Investments, Inc.
In fiscal 2014, the Company turned its focus on the development and retail of stealth cards, a product meant to block RFID (Radio Frequency Identifier Signal) chipped cards from being read when placed in the correct orientation to help users secure their personal information.
On March 14, 2016, the Company incorporated a new wholly owned subsidiary, Safety Technologies Inc., a Nevada company. The Company's intention is to sell products other than the stealth cards, through the subsidiary. As at June 30, 2016, there has been no activity within the subsidiary.
On May 19, 2016, the Company's wholly-owned subsidiary, Mobile Dynamic Marketing, Inc. changed its name to Stealth Card Inc.
On May 26, 2016, the Company changed its name from Excelsis Investments Inc. to Stealth Technologies, Inc.
These consolidated interim financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at March 31, 2017, the Company has a working capital deficit of $1,185,973 and an accumulated deficit of $3,736,231. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company's future operations. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
2. Summary of Significant Accounting Policies
a) Basis of Presentation and Principles of Consolidation
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") and are expressed in U.S. dollars. These consolidated financial statements comprise the accounts of the Company and its wholly-owned subsidiary, Safety Technologies Inc., a Nevada company. All intercompany transactions have been eliminated on consolidation. The Company's fiscal year end is December 31.
STEALTH TECHNOLGIES, INC.
Notes to the Consolidated Financial Statements
(unaudited)
2. Summary of Significant Accounting Policies
b) Interim Consolidated Financial Statements
These interim unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's consolidated financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. These unaudited condensed consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
c) Accounts Receivable
Accounts receivable represents amounts owed from customers for the sale of stealth cards and 911 buttons. Amounts are presented net of the allowance for doubtful accounts, which represents the Company's best estimate of the amount of probable credit losses in the existing accounts receivable balance. The Company determines allowance for doubtful accounts based upon historical experience and current economic conditions. The Company reviews the adequacy of its allowance for doubtful accounts on a regular basis. As of March 31, 2017 and December 31, 2016, the Company had no allowances for doubtful accounts.
d) Inventory
Inventory is comprised of stealth cards and 911 buttons purchased for resell, and is recorded at the lower of cost or net realizable value on a first-in first-out basis. The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future and market conditions.
e) Intangible Assets
Intangible assets are stated at cost less accumulated amortization and are comprised of customer accounts acquired with an useful life of three years and amortized straight line over three years and patent and trademark development costs, which are currently being developed and has not been placed in use. During the quarter ended March 31, 2017, the Company incurred $36,286 (2016 - $36,689) in amortization expense.
f) Basic and Diluted Net Loss per Share
The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As at March 31, 2017, the Company had 1,207,871 (December 31, 2016 – 3,617,571) potentially dilutive common shares from potential shares issuable for outstanding convertible debentures.
g) Revenue Recognition
The Company recognizes and accounts for revenue in accordance with ASC 605 as a principal on the sale of goods. Pursuant to ASC 605, Revenue Recognition, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the amount is fixed and determinable, risk of ownership has passed to the customer and collection is reasonably assured. The Company considered ASC 605-45, Principal Agent Considerations, and determined that the Company acts as a principal in its revenue-earnings activities as they are responsible for the production of goods purchased by the customer, can determine the pricing costs, goods purchased are paid directly by the Company, and has a credit risk with respect to collection of amounts owed by its customers.
STEALTH TECHNOLGIES, INC.
Notes to the Consolidated Financial Statements
(unaudited)
2. Summary of Significant Accounting Policies (continued)
g) Revenue Recognition (continued)
The Company considered ASC 605-45, Principal Agent Considerations, and determined that the Company does not act as the principal in its revenue-earnings activities related to certain service revenues where the Company does not bear enough of the risks in the transaction to record them on the gross basis. Revenues for these activities are recorded based on the net amount earned by the Company.
h) Cost of Revenue
For the Company's product sales, cost of revenue consists of inventory sold in each transaction. For the Company's service sales, cost of revenue consists of engineering services provided by a related party.
i) Financial Instruments
The following table represents assets and liabilities that are measured and recognized in fair value as of March 31, 2017, on a recurring basis:
|
Level 1
$
|
Level 2
$
|
Level 3
$
|
Total gains
and (losses)
|
|||||||||||||
|
Liability for shares issuable – related party
|
(1,191,960
|
)
|
–
|
–
|
(348,344
|
)
|
||||||||||
|
Derivative liabilities
|
–
|
–
|
(2,340
|
)
|
(396
|
)
|
||||||||||
|
Total
|
(1,191,960
|
)
|
–
|
(2,340
|
)
|
(348,740
|
)
|
|||||||||
The following table represents assets and liabilities that are measured and recognized in fair value as of December 31, 2016, on a recurring basis:
|
Level 1
$
|
Level 2
$
|
Level 3
$
|
Total gains
and (losses)
|
|||||||||||||
|
Liability for shares issuable – related party
|
(843,616
|
)
|
–
|
–
|
(12,383
|
)
|
||||||||||
|
Derivative liabilities
|
–
|
–
|
(1,944
|
)
|
489,305
|
|||||||||||
|
Total
|
(843,616
|
)
|
–
|
(1,944
|
)
|
476,922
|
||||||||||
As of March 31, 2017, the Company had a derivative liability amount of $2,340 (December 31, 2016 – $1,944) which was classified as a Level 3 financial instrument, and a loss on change in fair value of derivative liabilities of $396 (December 31, 2016 – gain of $489,305).
3. Convertible Debenture
On June 20, 2014, the Company entered into a consulting agreement for consulting services. Pursuant to the agreement, the Company is to pay the consultant a commencement fee of $250,000. On June 23, 2014, the Company issued a $250,000 convertible note which is unsecured, non-bearing interest and due on June 22, 2015. The note is convertible into shares of common stock 180 days after the date of issuance (December 17, 2014) at a conversion rate of 90% of the lowest closing bid prices of the Company's common stock for the ten trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at March 31, 2017, accrued interest of $27,461 (December 31, 2016 - $27,461) has been recorded in accounts payable and accrued liabilities.
STEALTH TECHNOLGIES, INC.
Notes to the Consolidated Financial Statements
(unaudited)
3. Convertible Debenture (continued)
On December 17, 2014, the note became convertible resulting in the Company recording a derivative liability of $94,188 with a corresponding adjustment to loss on change in fair value of derivative liabilities of $1,050 as accretion expense. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $125,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $20,000 on or before the third day of each subsequent month until the entire balance is repaid. During the year ended December 31, 2016, the Company recognized a gain in forgiveness of debt for $140,650 for principal and interest forgiven pursuant to the settlement agreement. The Company considered ASC Subtopic 470-50, Debt Modifications and Extinguishments, and determined that the modification was an extinguishment and therefore, recognized a gain on the extinguishment of the original debt. During the period ended March 31, 2017, the Company repaid $37,387 (December 31, 2016 - $180,000) of the outstanding loan pursuant to a settlement agreement. As March 31, 2017, the carrying value of the debenture was $32,613 (December 31, 2016 - $70,000) and the fair value of the derivative liability was $2,340 (December 31, 2016 - $1,830).
4. Derivative Liabilities
The Company records the fair value of the of the conversion price of the convertible debentures disclosed in Note 3 in accordance with ASC 815, Derivatives and Hedging. The fair value of the derivative was calculated using a multi-nominal lattice model performed by an independent qualified business valuator. The fair value of the derivative liability is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statements of operations. During the period March 31, 2017, the Company recorded a loss on the change in fair value of derivative liability of $396 (2016 – gain of $350,986). As at March 31, 2017, the Company recorded a derivative liability of $2,340 (December 31, 2016 – $1,944).
The following inputs and assumptions were used to value the convertible debentures outstanding during the period ended March 31, 2017:
|
·
|
The range of stock prices for the valuation of the derivative instruments at March 31, 2017 ranged from $0.0244 to $0.035 per share of common stock.
|
|
·
|
The debtholder would redeem (with penalties of 0% to 50% depending on the date and full-partial redemption) based on availability of alternative financing of 95%
|
|
·
|
The debtholder would automatically convert note at maturity if the registration was effective and the Company is not in default.
|
|
·
|
The projected annual volatility for each valuation period based on the historic volatility of the Company 259% - 233%
|
|
·
|
Capital raising events of $100,000 would occur in each quarter at 75% of market generating dilutive reset events at prices below $0.015 (rounded) for the convertible debentures.
|
A summary of the activity of the derivative liability is shown below:
|
$
|
||||
|
Balance, December 31, 2016
|
1,944
|
|||
|
Loss in change in fair value of the derivative
|
396
|
|||
|
Balance, March 31, 2017
|
2,340
|
5. Related Party Transactions
|
a)
|
As at March 31, 2017, the Company was owed $139,544 (December 31, 2016 - $59,926) in accounts receivable from a significant shareholder, which is non-interest bearing, unsecured, and due on demand. This amount has been included in accounts receivable – related party.
|
|
b)
|
As at March 31, 2017, the Company owed $70,132 (December 31, 2016 - $75,964) to the President of the Company, which is non-interest bearing, unsecured, and due on demand. This amount has been included in due to related parties.
|
STEALTH TECHNOLGIES, INC.
Notes to the Consolidated Financial Statements
(unaudited)
5. Related Party Transactions (continued)
|
c)
|
As at March 31, 2017, the Company owed $71,582 (December 31, 2016 - $87,834) to the Chief Financial Officer of the Company, which is non-interest bearing, unsecured, and due on demand. This amount has been included in due to related parties.
|
|
d)
|
As at March 31, 2017, the Company recorded a liability for shares issuable of $1,191,960 (December 31, 2016 - $843,616) relating to 34,055,996 common shares to be issued to a significant shareholder pursuant to the acquisition agreement for the intangible assets. During the period ended March 31, 2017, the Company recorded $348,344 (2016 – gain of $350,986) as a loss in the fair value of the shares issuable to the significant shareholder.
|
|
e)
|
During the three months ended March 31, 2017, the Company generated net service revenues of $79,502 (2016 - $119,494) for sales revenue to a significant shareholder.
|
|
f)
|
During the three months ended March 31, 2017, the Company incurred payroll expense of $137,767 (2016 - $187,439) to management and officers of the Company.
|
|
g)
|
During the three months ended March 31, 2017, the Company incurred bonuses on sales of stealth cards of $116 (2016 - $nil) to management and officers of the Company which has been included in cost of sales. Bonuses accrue on total gross sales at a rate of 5% each to the Chief Executive Officer and the Chief Financial Officer of the Company.
|
|
h)
|
During the three months ended March 31, 2017, the Company issued nil (2016 – 23,166,555) common shares with a fair value of $nil (2016 - $671,830) to management and officers of the Company which has been included in consulting expenses.
|
|
i)
|
During the three months ended March 31, 2017, the Company incurred research and development costs of $38,002 (2016 - $nil) to a company owned by the mother of the President of the Company. As at March 31, 2017, the Company was owed $413 (December 31, 2016 - $nil) from the company owned by the mother of the President of the Company, which is non-interest bearing, unsecured, and due on demand. The amount owing has been recorded as prepaid expense – related party. As at March 31, 2017, the Company owed $nil (December 31, 2016 – $9,587) to the company owned by the mother of the President of the Company, which has been recorded as accounts payable – related party.
|
6. Loans Payable
At March 31, 2017, the Company owes $120,000 (December 31, 2016 - $120,000) in a note payable to a non-related party. Under the terms of the note, the amount is unsecured, bears interest at 10% per annum, and due on demand.
7. Common Shares
|
a)
|
On January 24, 2017, the Company issued 1,000,000 common shares with a fair value of $25,000 to a non-related party for consulting services.
|
|
b)
|
On February 1, 2017, the Company issued 200,000 common shares with a fair value of $7,000 to a non-related party for consulting services.
|
8. Commitment and Contingencies
|
a)
|
On February 1, 2016, the Company received notice that a third party was seeking compensation for damages as a result of false advertisements made by the Company in regards to the Company's stealth cards. The plaintiff is a manufacturer and distributor of radio frequency identification (RFID) chip protection cards which are in competition with the Company's stealth cards. The Company has filed an answer to the plaintiff's complaint, with denials and affirmative defenses, and is unable to estimate the likelihood of any outcome as at March 31, 2017.
|
STEALTH TECHNOLGIES, INC.
Notes to the Consolidated Financial Statements
(unaudited)
8. Commitment and Contingencies (continued)
|
b)
|
On February 22, 2016, the Company received notice that a consultant was seeking compensation for breach of agreement. Pursuant to the agreement, the parties agreed to equally split any net profits generated from the sale of Stealth cards made by the consultant. The Company asserts that historical sales generated from the sale of the Stealth Cards were not as a result of the consultant's services, and therefore the Company should not be liable for any compensation due to the consultant. The Company has filed its Answer and Affirmative Defenses on July 18, 2016 and has asserted counterclaims against the consultant. The Company is currently awaiting the response from the consultant and is unable to estimate the likelihood of any outcome as at March 31, 2017.
|
9. Subsequent Events
On May 23, 2017, the Company issued two convertible debentures to non-related parties for a sum of $126,000, at $63,000 for each debenture. Pursuant to the agreement, each note bears interest at 8% per annum, is due on May 23, 2018, and is secured by the fair market value of assets of not less than $63,000. The debenture is convertible into common shares of the Company at a conversion price equal to 55% of the lowest trading price of the Company's common stock within twenty trading days including and preceding the conversion date
This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
RESULTS OF OPERATIONS
Working Capital
|
|
March 31, 2017
$
|
December 31, 2016
$
|
|
Current Assets
|
1,404,446
|
1,929,891
|
|
Current Liabilities
|
(2,590,419)
|
(2,475,947)
|
|
Working (Deficit)
|
(1,185,973)
|
(546,056)
|
Cash Flows
|
|
March 31, 2017
$
|
March 31, 2016
$
|
|
Cash Flows provided by (used in) Operating Activities
|
(207,640)
|
453,468
|
|
Cash Flows provided by (used in) Financing Activities
|
(37,387)
|
(109,491)
|
|
Net Change in Cash During Period
|
(245,027)
|
343,977
|
Operating Revenues
During the three months ended March 31, 2017, the Company earned revenue from operations of $748,759 compared with revenue of $1,422,784 during the three months ended March 31, 2016. The decrease in revenue is due to the fact that the Company earned less revenue from the sale of Stealth cards, net of an increase in sales for the 911 buttons, an emergency two way voice system that connects the user to 911. The decrease in total revenue is also due to a decrease in revenue from services during the three month period ended March 31, 2017 compared to the same period in 2016. For the three month period ended March 31, 2017, the Company recorded a gross margin of $356,860 or 47.66% compared to $930,835 or 65.42% during the period ended March 31, 2016. During the three month period ended March 31, 2017, the Company incurred a lower gross margin relating to the higher cost of the buttons sold in comparison to that in the prior year.
Operating Expenses and Net Loss
Operations
During the three months ended March 31, 2017, the Company incurred operating expenses from operations of $708,331 compared with $1,750,331 during the three months ended March 31, 2016. The decrease is due to a decrease of $154,228 in general and administrative expense due to an decrease in overall office costs, $49,672 in payroll expense as decreased salaries and benefits were incurred to the President and Chief Financial Officer of the Company in comparison to prior year and $886,726 for consulting fee as less business and financial consulting services were received in the current quarter. The decrease in fees is net of an increase of $38,002 for engineering fee relating to the development of a potential new product and $11,027 in accounting and audit fees.
Net Loss
For the three months ended March 31, 2017, the Company had net loss of $708,203 and basic and diluted net loss per share of $0.01. In addition to operating expenses from operations, the Company also incurred a loss of $396 for the change in fair value of derivative liabilities relating to the floating conversion price of its convertible debenture, loss of $348,344 in make whole expense, $5,000 in other losses to settle and outstanding lawsuit, and $2,992 in interest expense relating to interest charges incurred on its convertible debentures. For the three months ended March 31, 2016, the Company had a net loss of $885,850 and basic and diluted net loss per share of $0.01. In addition to operating expenses, the Company also incurred make whole expense of $389,144 and interest expense of $28,196 relating to interest charges incurred on its' convertible debentures. The change is net of a gain of $350,986 for the change in fair value of derivative liabilities relating to the floating conversion price of its' convertible debenture.
Liquidity and Capital Resources
As at March 31, 2017, the Company had cash of $211,940 and total current assets of $1,404,446 compared with cash of $456,967 and total current assets of $1,929,891 at December 31, 2016. The decrease in cash is attributed to less revenue earned from operations, in addition to cash used for cost of goods sold and operating expenses. The overall decrease in total current assets is due to decrease of $245,027 in cash, $390,334 in accounts receivable, $115 in inventory, net of an increase in $79,618 in accounts receivable - related party, $30,000 in prepaid expense, and $413 in prepaid expense - related party.
The overall working capital deficit increased from $546,056 at December 31, 2016 to $1,185,973 at March 31, 2017 due in part to increase in shares issuable - related party and derivative liability relating to the fair value of the floating conversion price of the convertible debenture, offset by a decrease in accounts payable, accounts payable – related party, amounts due to related parties, deferred revenue, and convertible debentures.
Cashflow from Operating Activities
During the three months ended March 31, 2017, the Company used $207,640 of cash from operating activities, which is reflective of the cash earned from operating activities, net of cash used for day-to-day business operations. Comparatively, the Company earned cash of $453,468 during the three months ended March 31, 2016. The decrease of cash used by operating activities is largely due to the Company having less revenue from the sale of its Stealth products and the 911 buttons in comparison to its prior period and due to paying off outstanding accounts payable balances with cash on hand.
Cashflow from Financing Activities
During the three months ended March 31, 2017, the Company used $37,387 of cash for financing activities, compared with $109,491 in cash used during the three months ended March 31, 2016. The decrease in cash used is due to the Company repaying less amounts on an outstanding convertible debenture in comparison to repayments made on outstanding loans payable and convertible debentures during the three months ended March 31, 2016.
Convertible Promissory Note
On June 20, 2014, the Company entered into a consulting agreement for consulting services. Pursuant to the agreement, the Company is to pay the consultant a commencement fee of $250,000. On June 23, 2014, the Company issued a $250,000 convertible note which is unsecured, non-bearing interest and due on June 22, 2015. The note is convertible into shares of common stock 180 days after the date of issuance (December 17, 2014) at a conversion rate of 90% of the lowest closing bid prices of the Company's common stock for the ten trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at March 31, 2017, accrued interest of $27,461 (December 31, 2016 - $27,461) has been recorded in accounts payable and accrued liabilities.
On December 17, 2014, the note became convertible resulting in the Company recording a derivative liability of $94,188 with a corresponding adjustment to loss on change in fair value of derivative liabilities of $1,050 as accretion expense. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $125,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $20,000 on or before the third day of each subsequent month until the entire balance is repaid. During the year ended December 31, 2016, the Company recognized a gain in forgiveness of debt for $140,650 for principal and interest forgiven pursuant to the settlement agreement. The Company considered ASC Subtopic 470-50, Debt Modifications and Extinguishments, and determined that the modification was an extinguishment and therefore, recognized a gain on the extinguishment of the original debt. During the period ended March 31, 2017, the Company repaid $37,387 (2016 - $60,000) of the outstanding loan pursuant to a settlement agreement. At March 31, 2017, the carrying value of the debenture was $32,613 (December 31, 2016 - $70,000) and the fair value of the derivative liability was $2,340 (December 31, 2016 - $1,830).
Critical Accounting Policies and Estimates
We prepared our financial statements and the accompanying notes in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions about future events that affect the reported amounts in the financial statements and the accompanying notes. We identified certain accounting policies as critical based on, among other things, their impact on the portrayal of our financial condition, results of operations, or liquidity and the degree of difficulty, subjectivity, and complexity in their deployment. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. Management routinely discusses the development, selection, and disclosure of each of the critical accounting policies. The following is a discussion of our most critical accounting policies:
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company's financial instruments consist principally of cash, accounts receivable, accounts receivable – related party, accounts payable and accrued liabilities, accounts payable – related party, loans payable, amount due to related parties, convertible debenture, and loan payable – related party. Pursuant to ASC 820, the fair value of our cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that these disclosure controls and procedures are not effective.
Management's assessment identified several material weaknesses in our internal control over financial reporting. These material weaknesses include the following:
- Insufficient number of qualified accounting personnel governing the financial close and reporting process
- Lack of proper segregation of duties
There was no change in our internal control over financial reporting during the three months ended March 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION.
| a) |
An action was initiated against us in Scanner Guard Corporation v. Excelsis Investments, Inc., et al., Case No. 16-516, pending in the United States District Court for the Eastern District of Pennsylvania wherein Scanner Guard alleges that we made false statements about our stealth card. The plaintiff is a manufacturer and distributor of radio frequency identification (RFID) chip protection cards which are in competition with our stealth cards. We filed an answer to Scanner's complaint, denying the allegations in Scanner's complaint and have asserted certain affirmative defenses. We intend to vigorously defend this matter.
|
| b) |
An action was initiated against us in The Marketing Source, Inc. v. Mobile Dynamic Marketing, Inc., a Florida corporation, et al, Case No. 2016-000823-CI, pending in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas County, Florida wherein The Marketing Source alleges that we breached the terms a Marketing Agreement and as a result The Marketing Source is entitled to an unspecified amount of damages, an accounting, and an injunction. We deny The Marketing Source's allegations and intend to vigorously defend this action.
|
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
During the quarter ended, March 31, 2017, we issued a total of 1,200,000 shares of our common stock to unrelated third parties for consulting services. The shares were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.
None.
None.
None.
|
Exhibit
|
|
Incorporated by reference
|
Filed
|
||
|
Number
|
Document Description
|
Form
|
Date
|
Number
|
Herewith
|
|
Exchange Agreement between Pub Crawl Holdings, Inc. and Mobile Dynamic Marketing, Inc.
|
8-K
|
01/31/13
|
2.1
|
||
|
Exchange Agreement between Pub Crawl Holdings, Inc. and Career Start, Inc.
|
10-Q
|
11/19/13
|
2.2
|
||
|
Articles of Incorporation - Pub Crawl
|
S-1
|
10/07/10
|
3.1
|
||
|
Articles of Incorporation - Mobile Dynamic Marketing, Inc.
|
10-K/A
|
04/16/13
|
3.2
|
||
|
Articles of Incorporation – Career Start, Inc.
|
10-K
|
04/15/14
|
3.3
|
||
|
Bylaws - Pub Crawl Holdings, Inc.
|
S-1
|
10/07/10
|
3.2
|
||
|
Bylaws - Mobile Dynamic Marketing, Inc.
|
S-1
|
06/14/13
|
3.4
|
||
|
Bylaws – Career Start, Inc.
|
10-K
|
04/15/14
|
3.6
|
||
|
Amended Articles of Incorporation – March 26, 2013
|
10-K
|
04/15/14
|
3.7
|
||
|
Amended Articles of Incorporation – October 24, 2013
|
10-K
|
04/15/14
|
3.8
|
||
|
Amended Articles of Incorporation – May 26, 2016
|
8-K
|
06/02/16
|
3.1
|
||
|
Correction to Amended Articles of Incorporation – June 2, 2016
|
8-K
|
06/02/16
|
3.2
|
||
|
Assignment Agreement between the Company, Peter Kremer, and PBPubCrawl.com, LLC dated June 14, 2010
|
S-1
|
10/07/10
|
10.1
|
||
|
Form of Management Agreement between the Company and Peter Kremer dated June 22, 2010
|
S-1
|
10/07/10
|
10.2
|
||
|
Promissory Note between the Company and Sun Valley Investments dated August 5, 2010
|
S-1
|
10/07/10
|
10.3
|
||
|
Consulting Agreement between the Company and Voltaire Gomez dated September 23, 2010
|
S-1
|
10/07/10
|
10.4
|
||
|
Settlement Agreement between the Company and Sun Valley Investments dated May 25, 2012
|
8-K
|
08/11/11
|
10.1
|
||
|
Promissory Note between the Company and Deville Enterprises, Inc. dated June 1, 2012
|
8-K
|
08/11/11
|
10.2
|
||
|
Debt Forgiveness Agreement with Hermaytar SA
|
10-K/A-2
|
07/21/14
|
10.7
|
||
|
Consulting Agreement with Still Goin Inc. dated March 17, 2016
|
10-Q
|
8/22/16
|
10.1
|
||
|
Consulting Agreement with Type A Partners Inc. dated March 17, 2016
|
10-Q
|
8/22/16
|
10.2
|
||
|
Code of Ethics
|
S-1
|
10/07/10
|
14.1
|
||
|
List of Subsidiaries
|
10-K
|
04/15/14
|
21.1
|
||
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
101.INS
|
XBRL Instance Document
|
X
|
|||
|
101.SCH
|
XBRL Taxonomy Extension – Schema
|
X
|
|||
|
101.CAL
|
XBRL Taxonomy Extension – Calculations
|
X
|
|||
|
101.DEF
|
XBRL Taxonomy Extension – Definitions
|
X
|
|||
|
101.LAB
|
XBRL Taxonomy Extension – Labels
|
X
|
|||
|
101.PRE
|
XBRL Taxonomy Extension – Presentation
|
X
|
|||
Pursuant to the requirements of the Securities Exchange Act of 1934, this registrant has duly caused this amended report to be signed on its behalf by the undersigned thereunto duly authorized on this 31st day of May 2017.
|
STEALTH TECHNOLOGIES, INC.
(formerly Excelsis Investments, Inc.)
|
||
|
BY:
|
BRIAN McFADDEN
|
|
|
Brian McFadden
|
||
|
President, Principal Executive Officer and Director
|
||
|
BY:
|
MICHELLE PANNONI
|
|
|
Michelle Pannoni
|
||
|
Principal Financial Officer, Principal Accounting Officer
and Treasurer
|
||
|
Exhibit
|
|
Incorporated by reference
|
Filed
|
||
|
Number
|
Document Description
|
Form
|
Date
|
Number
|
Herewith
|
|
Exchange Agreement between Pub Crawl Holdings, Inc. and Mobile Dynamic Marketing, Inc.
|
8-K
|
01/31/13
|
2.1
|
||
|
Exchange Agreement between Pub Crawl Holdings, Inc. and Career Start, Inc.
|
10-Q
|
11/19/13
|
2.2
|
||
|
Articles of Incorporation - Pub Crawl
|
S-1
|
10/07/10
|
3.1
|
||
|
Articles of Incorporation - Mobile Dynamic Marketing, Inc.
|
10-K/A
|
04/16/13
|
3.2
|
||
|
Articles of Incorporation – Career Start, Inc.
|
10-K
|
04/15/14
|
3.3
|
||
|
Bylaws - Pub Crawl Holdings, Inc.
|
S-1
|
10/07/10
|
3.2
|
||
|
Bylaws - Mobile Dynamic Marketing, Inc.
|
S-1
|
06/14/13
|
3.4
|
||
|
Bylaws – Career Start, Inc.
|
10-K
|
04/15/14
|
3.6
|
||
|
Amended Articles of Incorporation – March 26, 2013
|
10-K
|
04/15/14
|
3.7
|
||
|
Amended Articles of Incorporation – October 24, 2013
|
10-K
|
04/15/14
|
3.8
|
||
|
Amended Articles of Incorporation – May 26, 2016
|
8-K
|
06/02/16
|
3.1
|
||
|
Correction to Amended Articles of Incorporation – June 2, 2016
|
8-K
|
06/02/16
|
3.2
|
||
|
Assignment Agreement between the Company, Peter Kremer, and PBPubCrawl.com, LLC dated June 14, 2010
|
S-1
|
10/07/10
|
10.1
|
||
|
Form of Management Agreement between the Company and Peter Kremer dated June 22, 2010
|
S-1
|
10/07/10
|
10.2
|
||
|
Promissory Note between the Company and Sun Valley Investments dated August 5, 2010
|
S-1
|
10/07/10
|
10.3
|
||
|
Consulting Agreement between the Company and Voltaire Gomez dated September 23, 2010
|
S-1
|
10/07/10
|
10.4
|
||
|
Settlement Agreement between the Company and Sun Valley Investments dated May 25, 2012
|
8-K
|
08/11/11
|
10.1
|
||
|
Promissory Note between the Company and Deville Enterprises, Inc. dated June 1, 2012
|
8-K
|
08/11/11
|
10.2
|
||
|
Debt Forgiveness Agreement with Hermaytar SA
|
10-K/A-2
|
07/21/14
|
10.7
|
||
|
Consulting Agreement with Still Goin Inc. dated March 17, 2016
|
10-Q
|
8/22/16
|
10.1
|
||
|
Consulting Agreement with Type A Partners Inc. dated March 17, 2016
|
10-Q
|
8/22/16
|
10.2
|
||
|
Code of Ethics
|
S-1
|
10/07/10
|
14.1
|
||
|
List of Subsidiaries
|
10-K
|
04/15/14
|
21.1
|
||
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
101.INS
|
XBRL Instance Document
|
X
|
|||
|
101.SCH
|
XBRL Taxonomy Extension – Schema
|
X
|
|||
|
101.CAL
|
XBRL Taxonomy Extension – Calculations
|
X
|
|||
|
101.DEF
|
XBRL Taxonomy Extension – Definitions
|
X
|
|||
|
101.LAB
|
XBRL Taxonomy Extension – Labels
|
X
|
|||
|
101.PRE
|
XBRL Taxonomy Extension – Presentation
|
X
|
|||
10